Potash Weekly Review: Potash Prices to rise in 2013

Last week was very important for the potash market. There were two important announcements that have helped to better identify the direction of potash prices and those of mineral fertilizers in general. That direction, then, is upward. There is a definite sense that a recovery of the potash and fertilizer market is underway and that the price floor has been reached. Germany’s K + S chairman Norbert Steiner made the point quite clearly while addressing reporters from the German newspaper ‘Handelsblatt’, who observed that the floor price for potash, USD 400/ton, had been reached and that the next contracts would all be at a higher price. He was promptly vindicated as India signed potash contracts for 1 million and 1.3 million tons with the Belarusian-Russian venture BCP and with CANPOTEX, respectively, at a price of USD 427/ton.

Potash prices fell in 2012, especially in the latter half, due to a more contentious ‘negotiation’ season between the main potash producers in Canada and Russia and reluctance by China and India to buy. In December, CANPOTEX (Canadian Potash Exporters representing Potash Corp, Agrium Inc. and Mosaic), which controls some 33% of the world’s global potash supply signed a contract with China at USD 400/ton. The fact that a month later the agreed price is USD 427/ton All signs point to the end of the season of weak demand; indeed, while China and India have signed contracts at the USD 400-427 range, smaller buyers in Asia and South America – particularly Brazil – have been paying on the higher side of USD 460/ton, because they cannot command the kind of ‘volume discounts’ commanded by the two most populous nations on earth.

This is good news for the junior potash players that will start coming on line in the next two to three years, especially if they can establish or maintain low CAPEX and OPEX costs. Indeed, it is surprising that the performance of ProEdgeWire sponsor companies last week, recording an overall weekly change of -0.84% did not reflect the optimistic mood generated by the Indian potash contracts. A closer look at the general world market situation may help to account for the discrepancy. The best performers, IC Potash (TSX: ICP; OTCQX: ICPTF), Magna Resources (CNSX: MNA) and Potash Minerals Ltd. (ASX: POK) all have their projects in North America, allowing them to share in the ‘relief’ of the Indian contracts. Companies such as Allana Potash, operating in emerging markets and which actually released a very favorable Feasibility Study , suffered for reasons beyond its control. Indeed, while Ethiopia itself is one of the fastest economies in Africa, if not the world, and while Africa is slated to become a new frontier for potash, the emerging market indices in January and early February have been falling. The problem is related specifically to emerging market currency levels as compared against the Euro.

The MSCI Emerging Markets Index exchange lost 1.6% in euro terms in January while regional emerging stock markets have been experiencing either minor growth or minor drops (Eastern Europe +1.2%, Asia -1.9% and +0.7% Latin America). Investors’ interest in Africa has actually intensified in the past few years; however, the crisis in Mali and a renewed period of protest in North Africa doubtless played a role in increasing the perception of risk, even while the Company can expect to see rewards very shortly. Meanwhile, Potash Minerals and Magna both saw share price increases above 11%. Both companies are operating in Utah and waiting for the release of environmental permits from the Federal Bureau of Land Management (BLM). Last week, on February 4, a Federal appeals court ruled against conservationists and in favor of the resumption of activity at a uranium mine in Arizona, suggesting that similar decisions may be forthcoming for potash in Utah. The weekly potash share price numbers were: